Riparius, N.C. firm set to merge REITs don't confirm deal, but praise each other's worth

Real estate

November 18, 1997|By Kevin L. McQuaid | Kevin L. McQuaid,SUN STAFF

Timonium-based Riparius Development Corp. is preparing to merge with a North Carolina real estate investment trust that would fold its holdings into a nearly $2 billion portfolio, according to industry sources.

In addition to opening up a new market, Highwoods Properties Inc.'s pending $80 million deal with Riparius would give it several upscale suburban office projects and 180 acres of undeveloped property that is slated to become a major business park in Owings Mills.

For Riparius, an alliance with Highwoods would provide access to public capital to fund future development at a time when institutional owners such as REITs and pension funds are becoming dominant owners of commercial real estate in the Baltimore area and nationwide. So far in 1997, Highwoods has spent $1.1 billion acquiring properties.

As part of the Highwoods deal, Riparius also is expected to develop a 125,000-square-foot office building on a speculative basis, to take advantage of Owings Mills' low office vacancy rate of 5 percent. In all, Highwoods has roughly $275 million in development under way.

Although officials at both companies declined to comment specifically on any merger plans -- tentatively scheduled to be announced by mid-December -- both firms hinted that an alliance would make sense.

"We always look to enter new markets, and our strategy from Day One has been to merge with local sharpshooters that know their markets and are well-positioned," said Carmen J. Luizzo, Highwoods' chief financial officer.

"They're a high-quality office REIT that has done extremely well," said Mike McCarthy, Riparius Development's chairman.

Neither McCarthy nor Luizzo would elaborate.

Officials at Preston Partners Inc., the Baltimore real estate company that is representing both firms, could not be reached for comment.

Highwoods, which owns 330 projects totaling 30 million square feet in five Southeastern states and has a total market capitalization of nearly $3 billion, is expected to buy Riparius' portfolio through a combination of cash and operating partnership units, which could later be converted to Highwoods stock. The new Highwoods subsidiary would be called Highwoods/Riparius Properties Inc.

By issuing operating partnership units rather than paying cash, Riparius would avoid potentially costly tax consequences related to the sale of its holdings.

Most notably, a deal between Highwoods and Riparius would include 500,000 square feet of office space and Riparius Center, a 180-acre tract in Owings Mills that eventually could contain as much as 3.5 million square feet.

Later this week, Riparius is expected to begin construction on the first project in Riparius Center, a $14 million regional processing center for ADP Inc. The three-story, 115,000-square-foot building is scheduled for completion next September.

"They have some of the best suburban office projects in the Southeast," said Anatole Pevnev, a REIT analyst with Legg Mason Wood Walker Inc.

The possible link with Highwoods comes roughly a year and a half after Riparius halted plans to sell five office buildings in Timonium and Owings Mills, after bids fell short of the company's $48 million asking price.

At the time, McCarthy said the company planned to reinvest proceeds from the sale into other projects, including Riparius Center.

Pub Date: 11/18/97

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